MSME ACT: OBJECT & IMPACT

 

 

MSME ACT: OBJECT & IMPACT

 

Micro, Small and Medium Enterprises Development Act, 2006 (In short “MSME Act”) was enacted with the object of facilitating the promotion, development and enhancing the competitiveness of small and medium enterprises. The Act inter alia define “small enterprise” and medium enterprise and provides for establishment of a National Small and Medium Enterprises Board, besides, it provide for classification of small and medium enterprises on the basis of investment in plant and machinery or equipment or establishment of Advisory Committee. What is of pertinence is that the MSME Act encapsulates provisions for ensuring timely and smooth flow of credit to small and medium enterprises to minimize the incidence of sickness in accordance with the Guidelines of Reserve Bank of India (RBI). The MSME Act has faced impediments in its way, and the object sought to be achieved has been achieved, but only partially. 

THE PROVISIONS

Chapter V of the said MSME Act (sections 15 to 24) contains provisions to address the issue of delayed payment to Micro and Small Enterprises. Section 15 of the Act mandates that where any supplier supplies any goods or renders any services to any buyer, the buyer would make the payment for the same on or before the date agreed, which in any case could not exceed 45 days from the date of acceptance/deemed acceptance. Section 16 of the Act provides for payment of interest. Section 17 of the Act mandates that the buyer would be liable to pay the amount for the goods supplied or services rendered along with interest as provided under Section 16 of the Act. 10.

Section 18(1) of the Act contains a non obstante clause and enables any party to a dispute to make a reference to the Micro and Small Enterprises Facilitation Council (MSEFC).

If one examines the scheme of the provision of Section 15 to 23 of the Act, it is apparent that the scheme is to provide a statutory framework for Micro and Small Enterprises to expeditiously recover the amounts due for supplies made by them. This is in conformity with the object of the Act to minimize the incidence of sickness in Small and Medium Enterprises and to enhance their competitiveness. It is understood that the Small and Medium Enterprises do not command a significant bargaining power and to thus it is indicated in the statement of object and reasons of the Act - the object of the Act is, inter alia, to extend the policy support and provide appropriate legal framework for the sector to facilitate its growth and development.

ARBITRATION AS PER MSME ACT

It is, apparently, for this reason that Section 18 (3) does not contemplate an Arbitration to be conducted by an Arbitrator which is to be appointed by either party, but expressly provides that the same would be conducted by MSEFC or by any institution or a centre providing alternate dispute resolution services.

Section 19 of the Act also ensures a more expedient recovery by making pre-deposit of 75% of the awarded amount, a pre condition for assailing the award. It is necessary to point out that the benefit of this provision is also available in case of arbitrations in terms of agreements between the parties (and not by a statutory reference under Section 18 (3) of the Act). As per the law evolved and shall be discussed subsequently. It is so, as the MSME Act overrides the other law for the time being in force. Section 24 may be perused in this regard: 

Section 24 of MSME Act has Overriding effect-

24. The provision of sections 15 to 23 shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.”

 A plain reading of Section 18(2) of the Act indicates that on receipt of a reference under Section 18(1) of the Act, the Council [MSEFC] would either conduct conciliation in the matter or seek assistance of any institution or centre providing alternate dispute resolution services. It also expressly provides that Section 65 to 81 of the Arbitration & Conciliation Act (A& C) 1996 Act, would apply to such a dispute as it applies to conciliation initiated under the Part III of the A&C Act. It is clear from the provisions of Section 18 (2) of the Act that the legislative intention is to incorporate by reference the provisions of Section 65 to 81 of the A&C Act to the conciliation proceedings conducted by MSEFC.

Section 18 (3) of the Act expressly provides that in the event the conciliation initiated under Section 18 (2) of the Act does not fructify into any settlement, MSEFC would take up the disputes or refer the same to any institution or centre providing alternate dispute resolution services for such arbitration.

 

                                     LAW: AS EVOLVED

PIYA BAJWA  Vs  MICRO AND SMALL ENTERPRISES FACILITION CENTRE AND ANR. W.P.(C) 1134/2021 & CMAPPL. 3201/2021

 

The hon’ble Delhi high court in the above case had occasion to deal with the following communication issued by the Micro and Small Enterprises Facilitation Council (MSEFC) by which the Petitioner was called to participate in the conciliation process and also file a reply.  The impugned communication issued by the Facilitation Council dated 31^st  December, 2020 reads as under:

“The MSEF Council, Delhi is in receipt of a reference filed u/s 18(1) of the MSMED Act, 2006 by the Claimant M/s Sharp Travels (India) Ltd., Application/Temp No. DL08E0001555/S/00122 against the outstanding dues of Rs. 308307 which is to be paid by you to the Claimant. I am directed to inform you that the MSEF Council, Delhi has decided that the conciliation process should be taken up first before release of outstanding dues to the Claimant, failing which a Notice to personally appear before the Council will be served to you for taking further necessary action in the matter. Further, I am to inform you that as per Section 16 of the MSMED Act, 2006 the Respondent will be liable to pay the compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank. It is therefore requested to file the reply of outcome of the conciliation process held between both of you within 30 days.”

The petitioner in the writ petition had assailed that and pointed out that the words “decided that” clearly implied that Facilitation Council has taken a decision in the matter that the Petitioner ought to release the outstanding dues, whereas the  claim is time barred and thus, such a decision could not have been taken without hearing the Petitioner. As the claim itself was not maintainable, therefore, proceeding further was uncalled for. Per contra, it was the contention of respondent that the mere fact that the Facilitation Council has called the parties for exploring conciliation in terms of Sections 18(1) and 18(2) of the Micro, Small and Medium Enterprises Development Act, 2006 does not imply that any decision was taken. In case, the conciliation process fails then the remedies of the Petitioners are available in terms of Sections 18(3) and (4) of the MSME Act. The conciliation process is meant to resolve the disputes between the parties in an amicable manner. The petitioner therefore cannot be forced  to enter into a settlement with Respondent .

ARBITRATION ACT AND MSME ACT: IS THERE OVERLAP?

 

The scheme of the MSME Act has been discussed in detail in the judgment of a ld. Single Judge of hon’ble Delhi High Court in BHEL vs. The Micro and Small Enterprises Facilitation Centre & Anr., [W.P.(C) 10886/2016, decided on 18th September, 2017]. The Court observed therein as under:

 

 A plain reading of Section 18(2) of the Act indicates that on receipt of a reference under Section 18(1) of the Act, the Council [MSEFC] would either conduct conciliation in the matter or seek assistance of any institution or centre providing alternate dispute resolution services. It also expressly provides that Section 65 to 81 of the A&C Act would apply to such a dispute as it applies to conciliation initiated under the Part III of the A&C Act.

It is clear from the provisions of Section 18(2 of the Act that the legislative intention is to incorporate by reference the provisions of Section 65 to 81 of the A&C Act to the conciliation proceedings conducted by MSEFC.  Section 18(3) of the Act expressly provides that in the event the conciliation initiated under Section 18(2) of the Act does not fructify into any settlement, MSEFC would take up the disputes or refer the same to any institution or centre providing alternate dispute resolution services for such arbitration.

In paragraph 17, it is held that

“It is at once clear that the provision of Section 18(3) of the Act do not leave any scope for a non institutional arbitration. In terms of Section 18(3) of the Act, it is necessary that the arbitration be conducted under aegis of an institution-either by MSEFC or under the aegis of any “Institution or Centre providing alternate dispute resolution services for such arbitration”.”

 

Interestingly, the Bombay High Court in the case of M/s Steel Authority of India v. The Micro, Small Enterprise Facilitation Council and Anr. : AIR 2012 Bom 178 held in paragraph 11 of the said judgment, that “we find that there is no provision in the Act, which negates or renders the arbitration agreement entered between the parties ineffective”.

The Punjab and Haryana High Court in The Chief Administrative, COFMOW (supra) had rejected the contention that provisions of Section 18 (3) of the Act for referring the disputes to arbitration would apply only where there was no arbitration agreement between the parties.

However, Punjab & Haryana High Court in Welspun Corp. Ltd v. The Micro and Small, Medium Enterprises Facilitation Council, Punjab and others :CWP No. 23016/2011 decided on 13.12.2011, had taken a view contrary to that of the Bombay High Court. Similarly, the decision of the Madras High Court in M/s Refex Energy Limited v. Union of India and Another : AIR 2016 Mad139 was also on the line of welspun (Supra)

The judgment rendered by Allahabad High Court in BHEL v. State of U.P. and Others : W.P. (C) 11535/2014 decided on 24.02.2014;  the decision of the Calcutta High Court in NPCC Limited and another v. West Bengal State MSEFC & Ors.: GA No. 304/2017 W.P. 294/2016 decided on 16.02.2017; and the decision of Delhi High Court in GE T & D India Ltd. v. Reliable Engineering Projects and Marketing : OMP (Comm.) No. 76/2016 decided on 15.02.2017, are on similar line and contrary to Bombay High Court.

The Calcutta High Court in the case of National projects Construction Corporation Limited (supra) had also concluded that in cases where an arbitration agreement existed between two parties and one such party was an entity within the meaning of the Act, the Council established under the Act would have jurisdiction to arbitrate the disputes between such parties. The Court further observed as under:-

“When there exists an arbitration agreement between two parties and one of such parties to the arbitration agreement is an entity within the meaning of the Act of 2006, the Council established under the provisions of the Act of 2006 or any institution or centre identified by it has the jurisdiction to arbitrate such disputes on a request being received by such Council for such purpose”.

 

The Supreme Court in National Seeds Corporation Ltd v. M. Madhusudhan Reddy & Anr. : (2012) 2 SCC 506 has held that the MSME Act  being a Special Act would override the provisions of Arbitration and Conciliation Act, 1996 (hereafter the 'A&C Act').

It is thus clear through catena of judicial precedents that even when there may be arbitration agreement between the parties, but in view of non obstante clause in MSME Act and the fact that the MSME Act is a special enactment, the provision of MSME Act shall prevail and the arbitration, if allowed to comm3ence upon failure of amicable settlement, the same shall be under the aegis of MSME Act only.

OVEREMPHASIS ON THE WORD SUPPLIER

The MSME Act however overemphasize “supplier” and “buyer” and buyer is perceived to be liable, though section 18 somewhat clears the air, in as much as it is specified that “any party to a dispute” with regard to any amount due may make a reference for a sum due u/s 17 of the MSME Act before the Micro and Small Enterprises Facilitation Council (MSEFC). The classification of “supplier” and “buyer” category is inadequate in as much as there may be several instance where the buyer may be in receiving ends from a supplier, which may be a big establishment and may dictate their terms and thus overemphasis on buyer being liable to supplier is something which deserve a relook. Similarly, the issue of jurisdiction or exclusive jurisdiction is somewhat ambiguous under the MSME Act in as much as, whereas the situs of jurisdiction shall be the location of “supplier”  but in similar vein it is also written and buyer all over the country. It is though vague, whether buyer shall be entitled to raise a claim in their location itself or not? The section 18(4) may be perused in this regard:

(4) Notwithstanding anything contained in any other law for the time being in force, the Micro and Small Enterprises Facilitation Council or the centre providing alternate dispute resolution services shall have jurisdiction to act as an Arbitrator or Conciliator under this Section in a dispute between the supplier located within its jurisdiction and a buyer located anywhere in India.

The ambiguity, therefore crave for rectification. 

REMARK

The MSME Act and MSEFC constituted under it has travelled some distance and provisions are made in the Act not only to promote MSME organization, but some leverage is accorded to them for seeking speedy redressal of their grievance, still, the gaping holes in the Act need to be plugged and some more teeth may be given to the MSEFC under the MSME Act. Besides, overemphasis on “supplier” and “buyer” and showing buyer as liable is incomplete depiction or assumptive of a situation. There may be instance, where buyers could be in receiving end, though, what is inherent in the Act is that buyer shall be liable and otherwise also liability upon buyer is fastened in terms of the Act. This is oversimplification and the aggrieved party needs to be clearly defined and that could be buyer or supplier or any other entity. The issue of jurisdiction , particularly, the territorial jurisdiction as per the Section 18(4) of the MSME Act need to be clearly specified to make it more explicit and to undo the vagueness..

 

Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com 

 

 

GRANTING OF BAIL AND CANCELLATION OF BAIL: PARAMETER

 

GRANTING OF Bail AND CANCELLATION OF BAIL: Parameter

 

The basic rule is bail and not jail. However, in non-bailable offence, the discretion is applied by respective courts and bail can be granted, only, upon analyzing the severity of offence and/or probable innocence of accused, apart from factoring myriads of factors. This is so, as securing attendance of accused during trial is of paramount consideration and unless, the liberty to the accused is required to be curtailed due to the allegation and overwhelming circumstances, bail may be granted. The provision of regular bail finds mention under Section 437 of Code of Criminal Procedure and the same relates to court of Magistrate, whereas, under Section 439 of Code of Criminal Procedure, the bail is preferred before the Sessions Court or High Courts. These provisions shall be attracted, only, if the accused are arrested and in prison and hence, such a bail application, when preferred, while in custody is called Regular Bail application. Conversely, the persons named in F.I.R or otherwise apprehensive of arrest due to the allegation relating to non- bailable offence, could prefer the Pre- Arrest bail petition known as Anticipatory Bail and the same shall be preferred before Sessions Court only u/s 438 of Code of Criminal Procedure. In case, the Sessions court declines the bail, then the same could be preferred before the high court u/s 438 of Cr.P.C the application can be preferred. The bail once granted, are not generally interfered with, unless, there are cogent reasons and overwhelming cause to that effect. The provision of cancellation of bail finds narration in section 439 (2) of Cr.P.C. The present write up, the issue of cancellation of bail and its parameter is being delved in. As the courts are generally loath in cancelling bail, the authorities and precedents to that effect are limited.

                          LAW AND JUDICIAL PRECEDENTS

In recent judgment, captioned as DHARMARAJAM & ORS.. Versus THE STATE OF TELANGANA & ANR Criminal Appeal Nos. 1974- 1975 of 2019 (@ SLP (Crl.) Nos.8882-8883 of 2019), the hon’ble supreme Court has dealt with the issue.It is held by hon’ble Supreme Court that for the purpose of bail, the Court must not undertake meticulous examination of the evidence collected by the police and comment on the same. In Raghubir Singh Vs State of Bihar, 2 (1986) 4 SCC 481 the Supreme Court held that bail can be cancelled where :

(i)          the accused misuses his liberty by indulging in similar criminal activity,

(ii)         interferes with the course of investigation,

(iii)       attempts to tamper with evidence or witnesses,

(iv)       threatens witnesses or indulges in similar activities which would hamper smooth investigation,

(v)         there is likelihood of his fleeing to another country,

(vi)       attempts to make himself scarce by going underground or becoming unavailable to the investigating agency,

(vii)     attempts to place himself beyond the reach of his surety, etc.

The Supreme Court has held that above grounds are illustrative and not exhaustive. It must also be remembered that rejection of bail stands on one footing but cancellation of bail is a harsh order because it interferes with the liberty of the individual and hence it must not be lightly resorted to.

In  Kanwar Singh Meena vs State of Rajasthan & Anr. (2012) 12 SCC 180  it is held by hon’ble Supreme Court that it is trite law that bail can be cancelled in cases, where the order granting bail suffers from serious infirmities resulting in miscarriage of justice. If the court granting bail ignores relevant material, indicating prima facie involvement of the accused or takes into account irrelevant material, which has no relevance to the question of grant of bail to the accused, the High Court or the Sessions Court would be justified in cancelling the bail.

The factors to be considered while granting bail have been held by this Court to be the gravity of the crime, the character of the evidence, position and status of the accused with reference to the victim and witnesses, the likelihood of the accused fleeing from justice and repeating the offence, the possibility of his tampering with the evidence and witnesses, and obstructing the course of justice etc. Each criminal case presents its own peculiar factual scenario and, therefore, certain grounds peculiar to a particular case may have to be taken into account by the Court. The court has to only opine as to whether there is prima facie case against the accused. For the purpose of bail, the Court must not undertake meticulous examination of the evidence collected by the police and comment on the same.

The hon’ble Supreme Court has held in Dharmarajam (Supra) that It must also be remembered that rejection of bail stands on one footing but cancellation of bail is a harsh order because it interferes with the liberty of the individual and hence it must not be lightly resorted to. The complaint alleging that the Appellants were influencing witnesses is vague and is without any details regarding the involvement of the Appellants in threatening the witnesses.

Section 436 A was introduced in the Code of Criminal Procedure, 1973 in the year 2005 and the same relates to laying down the conditions and specifies as regards the length of time for which an accused can be kept under police custody. It is prescribed through the amendment that if an offence is punishable for a particular period and if half of the duration is spent in custody by the accused during pendency of the case, then, the accused can be released on temporary bail. However, the accused still may have to required in investigation and in such case the accused shall be obligated to appear before the concerned authority.

Once an individual is arrested for a crime he can apply for bail. If the offence the accused is charged with is a bailable offence, then the bail application shall be filed under Section 436 of the Code of Criminal Procedure, 1973 at the Court or the police station. The accused , upon granting of bail has to furnish surety and pay the sum of money prescribed in that regard. The sureties also may have to sign the bail bond as a guarantee that the accused will not escape proceedings and shall present himself during investigation. 

However, in case, the accused is charged for the commission of a non-bailable offence then the bail application shall be filed under Section 437 of the Code of Criminal Procedure, 1973 at the Magistrate’s Court or under Section 439 of the Code of Criminal Procedure, 1973 at the Session’s Court or High Court. Once bail is granted surety is again required to be furnished in the terms laid down in bail order. 

The Article 21 of The Constitution of India prescribed that   “No person shall be deprived of his life or personal liberty except according to the procedure established by Law”. This clearly implies that right to defend or stand trial is a basic right . Bail is a mechanism to safeguard liberty by allowing them to leave police custody and defend their case The even playing field is required to be made available to the accused and one cannot defend himself being incarcerated. No doubt, right to bail is a basic right, as the state cannot deprive individuals of their life and liberty until they have been found guilty beyond a reasonable doubt. Granting of bail is thus premised on the above situation, however, as narrated, severity of offence and pervasive allegation has to be factored. A welfare state has to provide safeguards and malicious prosecution also cannot be ruled out therefore, the safeguard is all the more necessary.

In Siddharam Satlingappa Mhetre v. State of Maharashtra (2011) 1 SCC 694 The Supreme Court overturned the High Court’s decision and granted the accused Anticipatory bail. It is held that if the accused is ready to cooperate with the inquiry and is not likely to fleeing from justice, protection can be granted. In para no. 147, the hon’ble Supreme Court’s observation is worth reference:

147. A three-Judge Bench of this court in Official Liquidator v. Dayanand and Others (2008) 10 SCC 1 again reiterated the clear position of law that by virtue of Article 141 of the Constitution, the judgment of the Constitution Bench in  State of Karnatakqa & Ors vs Umadevi & and Others (2006) 4 SCC 1 is binding on all courts including this court till the same is overruled by a larger Bench. The ratio of the Constitution Bench has to be followed by Benches of lesser strength. In para 90, the court observed as under:-

"We are distressed to note that despite several pronouncements on the subject, there is substantial increase in the number of cases involving violation of the basics of judicial discipline. The learned Single Judges and Benches of the High Courts refuse to follow and accept the verdict and law laid down by coordinate and even larger Benches by citing minor difference in the facts as the ground for doing so. Therefore, it has become necessary to reiterate that disrespect to the constitutional ethos and breach of discipline have grave impact on the credibility of judicial institution and encourages chance litigation. It must be remembered that predictability and certainty is an important hallmark of judicial jurisprudence developed in this country in the last six decades and increase in the frequency of conflicting judgments of the superior judiciary will do incalculable harm to the system inasmuch as the courts at the grass roots will not be able to decide as to which of the judgments lay down the correct law and which one should be followed."

Conclusion

The discussion as aforesaid shall conspicuously reflect that whereas, while granting bail to an accused charged with non bailable offence, the discretion is available to the court. The liberty of an individual is quintessential and unless, the accused is charged with grave and heinous offence and allegation against him are all pervasive, the bail may be granted. The balance is required to be created and custody Vs liberty is to be weighed appropriately. Moreover, while bail is granted, order of cancellation of the bail shall not generally be passed, unless, there are overwhelming reasons to that effect as narrated above.

Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

  

 

REGISTRATION OF SALE DEED: PRESENCE OF PURCHASER NOT NECESSARY

 

REGISTRATION OF SALE DEED: PRESENCE OF PURCHASER NOT NECESSARY

Many people may not have probably heard of the fact that there is no necessity of a purchaser to present himself before Sub- Registrar for seeking registration of a document/sale deed and even in his absence there is no embargo in registering the document such as sale deed. The hon’ble Supreme Court has set at rest any ambiguity or ambivalence in this regard while pronouncing judgment on 24^th January, 2020 in a matter captioned as H.P.Puttaswamy Versus Thimmamma & Ors., bearing Civil Appeal No. 3975 of 2010.

The transactions in immoveable properties or any interest created in immoveable property for a period of one year or above shall be liable to be registered compulsorily u/s 17 of the Registration Act, 1908( In short “the Act”) is not in dispute. As regards procedure, though, when the registration of document can be stated to be completed and further, whether the presence of purchaser in respect of a sale deed before the sub-Registrar, at the time of the registration of the document is a must or not is now settled.

The section 17 of the Act contains the details as regards the instrument does not crave fir registration.   

Be that as it may, to put in perspective, in the aforesaid case, before the court of first instance, it was held that the purchaser of the property was not present before the Sub-Registrar and therefore, the sale deed, so registered cannot be treated as genuine. The 1^st Appellate court had accepted the reasoning of trial court and the matter was raised in 2^nd appeal u/s 100 of Code of Civil Procedure by the aggrieved party, before hon’ble High Court of Karnataka. The High court had set aside the orders passed by the court below and held that sale deed dated 21^st April, 1981 to be valid relying on Sections 32, 34 and 36 of the Registration Act, 1908 read with Rule 41 and 71, Karnataka Registration Rule 1965. The High Court had observed and held as under:

A combined reading of the above sections of the Registration Act and the Rules mentioned above makes it clear that the presence of the purchaser is not required when the document is presented for registration before the Sub Registrar. It is further held that:

“The Trial Court has failed to take note of the aforesaid provision of law of the Registration Act and has erred in holding that merely because the defendant was not present the sale deed in his favour cannot be taken as valid in law. The said conclusion reached is contrary to the above mentioned provisions of the Registration Act and the Rules. As such, the said finding cannot be sustained in law.

Once, the sale deed in favour of the defendant is held to be valid in law and the said sale deed being executed earlier in point of time by the vendor, the question of the said vendor retaining any interest in the suit property will not arise and, as such, he could not have once again sold the very same property on a later date i.e. 28.5.1981 in favour of the plaintiff. Therefore, the substantial question of law raised is answered in the negative.”

 

To be noted that, the Section 32 of the Registration Act, 1908 entails presentation of the document to be registered at the proper registration office by following categories of persons:

32. Persons to present documents for registration.—Except in the cases mentioned in [Sections 31, 88 and 89], every document to be registered under this Act, whether such registration be compulsory or optional, shall be presented at the proper registration office,

(a) by some person executing or claiming under the same, or, in the case of a copy of a decree or order, claiming under the decree or order, or

(b) by the representative or assign of such a person, or

(c) by the agent of such a person, representative or assign, duly authorized by power of attorney executed and authenticated in manner hereinafter mentioned.”

There is evidence to the effect that purchaser had not come to the office of the Sub Registrar at the time of execution of the sale deed. But as per law as it stood at the material point of time, there was no necessity of presence of purchaser at the Registration Office during the registration of sale deed. The execution of deed and that aspect has not been disputed. The deed in question does not fall within Sections 31, 88 and 89 of the Registration Act 1908. Section 32 of the said Act does not require presence of both parties to a deed of sale when the same is presented for registration.

The Section 31 of the Act mandates that the document is to be presented for registration in appropriate office, authorized to receive such a document. Similarly, Section 88 of the Act provides that it shall not be necessary that following person shall appear before the Registrar in person or by Authorised Agent:

(a) any Government Servant

(b) any Administrative General, Official Trustee or Official Assignee or

(c) The Sheriff , Receiver or Registrar of a High Court, or

(d) The holder of the time being of such other public office as may be specified in a notification in the Official Gazette issued in that behalf by the State Government shall appear in person.

As per Section 88(3) upon satisfaction of the Registrar, in a manner provided in the sub-section, the document can still be registered. 

The Section 89 of the Registration Act 1908 encapsulates the provision that sale certificate in auction or certificate issued by any public Authorities shall be sent to the Registrar Office, for registration and the same shall be registered.

The hon’ble Supreme Court has held in the above reference as under:

“As per law as it stood at the material point of time, there was no necessity of presence of purchaser at the Registration Office during the registration of sale deed. The deed was executed by Vendor and that aspect has not been disputed. The deed in question does not fall within Sections 31, 88 and 89 of the Registration Act. Section 32 of the said Act does not require presence of both parties to a deed of sale when the same is presented for registration”.

The hon’ble Supreme Court has thus held after analyzing the relevant provisions of the Act that the high court had rightly dismissed the appeal, in as much as, as per the provision of Registration Act, there is no need or compulsion of the purchaser to present himself before the Sub-Registrar for executing the sale deed or for registration of documents.

REMARK

It is therefore crystal clear that as per the trap of Registration Act, 1908, a purchaser to a sale deed is not mandated to be present in person for seeking registration of sale deed and so long as the document is in order and no dispute emanates there from, the physical presence of a purchaser is not necessary. Of course, with a view to ward off any ambiguity , the parties present themselves before Registrar for seeking to register a document, but the same is not a dicta nor procedure necessarily entails that. The parties remain present conventionally and with a view to avoid any dispute or prospective dispute, though, as illustrate, the purchaser is not required to be present before the Registrar’s office as per the mandate of law.      

                                           Anil K Khaware

Founder & Sr Associate

Societylawandjustice.com 

APPLICABILITY OF COMMERCIAL COURTS ACT 2015 IN MATTERS RELATED TO IMMOVEABLE PROPERTIES

 

 

APPLICABILITY OF COMMERCIAL COURTS ACT 2015 IN MATTERS RELATED TO IMMOVEABLE PROPERTIES

 

Ever since the enactment of Commercial Courts Act 2015 whereby, Commercial Courts and Commercial Division are created, the issue as regards the applicability of the Commercial Acts crops up and the courts are saddled with the issue. More particularly, the issue of lease agreements and the claim arising therefore seems to create some ambiguity. However, the issue has been settled by the Division Bench of hon’ble Delhi High Court in a matter captioned as Jagmohan Behl vs State Bank of Indore (Coram: Hon’ble Justice Sanjiv Khanna, hon’ble Justice A.K Chawla) in FAO (OS) 166 /2016

 

FACTUAL MATRIX

The issue raised in it relates to interpretation of Section 2 (1) (c) (vii) of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 (In short “ the Act”.). The facts of the case are in narrow compass. The plaintiff (Appellant) had instituted a suit against the tenant bank for

recovery of mesne profits of Rs.1.08 crores along with interest from the defendant in respect of a property at Connaught Circus, New Delhi. The said property was given on lease to the bank in the year 1986 for a period of five year on a monthly rent of Rs.40,000/- with renewal clause for two further terms with enhancement of rent by 15%. The bank had also sanctioned a loan of Rs.24 lakhs with interest @ 17.5% per annum to the appellant/ plaintiff which was agreed to be paid by way of adjustment against the rent. It is of significance that the plaintiff had earlier filed a civil suit seeking possession in the year 2001 being Suit No.340/2001 in which a decree under Order XII Rule 6 of the Code of Civil Procedure, 1908 (Code, for short) was passed in May 2002. However, in RFA preferred by the bank (RFA No.361/2002) preferred by the Bank the execution was stayed. The bank had subsequently given an undertaking to vacate. the premises within one year and that was accepted on some terms of payment of mesne profits. Possession was handed over to the appellant.

However, CS (OS) NO. 2008/2010 was filed in the Delhi High Court for some claims of plaintiff, in view of the limit of pecuniary jurisdiction. However, vide office order dated 24th November, 2015, issued by the Chief Justice in exercise of power conferred under Section 4 of the Delhi High Court (Amendment) Act, 2015, pecuniary jurisdiction for ordinary suits, which were not “commercial disputes”, was raised to Rs.2 crores. The suits below Rs.2 crores were to be transferred to district courts. However, in cases of “commercial disputes” as defined under the Act, suits of specified value as determined vide Section 12 thereof, of not less than Rs.1 crore were to be tried by the High Court and were not to be transferred.

It may be added this was the law and procedure prevailing, then. However, the broad contour of the present topic is as regards transaction of immoveable property what shall constitute    “commercial dispute” and when the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015.

The ld single Judge of Delhi High Court vide order dated 1st March, 2016, while referring to Section 2 (1) (c) (vii) of the Act has held that the suit was to be transferred to the District Court as it does not relate to a commercial dispute for no right under an agreement relating to immoveable property was sought to be enforced, inasmuch as the suit only seeks recovery of rent and mesne profits. It was held that the suit shall fall under Section 9 of the Act and not pursuant to an agreement. The order of single judge was impugned before the hon’ble Division bench.

The analysis by the Division bench:

 

(1) The definition clause, i.e. 2 (1) (c) (vii), of the Act may be gone through:

 

“Definitions.-(1) In this Act, unless the context otherwise requires- (c) “commercial dispute” means a dispute arising out of- (vii) agreements relating to immoveable property used exclusively in trade or commerce;

 

Explanation.-A commercial dispute shall not cease to be a commercial dispute merely because-

(a) It also involves action for recovery of immoveable property or for realisation of monies out of immoveable property given as security or involves any other relief pertaining to immoveable property;

 

(b) One of the contracting parties is the State or any of its agencies or instrumentalities, or a private body carrying out public functions;”

It was held that the explanation is of paramount importance and shall have to be read as part and parcel of clause (vii), as, the language of the explanation reflects the purpose, and its construction in sync with the object which is contained in the main provision. The main provision, thus, has to be read in conjunction with the explanation and in furtherance to that, the scope and ambit of sub-clause (vii) to clause(c), defining the expression “commercial dispute”, could be interpreted. The explanation harmonises and dispels any ambiguity or doubt when it comes to interpretation of the main provision.

The hon’ble Division bench also relied upon a judgment of the Apex Court captioned S. Sundaran Pillai and Ors. Vs. V.R. Pattabiraman & Ors. (1985) 1 SCC 591. What was reemphasized that explanation to a statutory provision could explain the meaning and intendment of the provision itself and any obscurity and opacity could be cleared from bare reading of explanation. The explanations shall therefore be a necessary adjunct of the provision and taking the explanation together with the main provision, the dominant object could be ascertained Needless to say that such explanation should be construed harmoniously and shall not take away the statutory right. The explanation, thus, aid in arriving at and facilitate the object and shall not cause any impediment in the interpretation of the same.

In this backdrop, the hon’ble Division bench has held that:  

“clause (c) defines the “commercial dispute” in the Act to mean a dispute arising out of different sub-clauses. The expression “arising out of” in the context of clause (vii) refers to an agreement in relation to an immoveable property. The expressions “arising out of” and “in relation to immoveable property” have to be given their natural and general contours. These are wide and expansive expressions and are not to be given a narrow and restricted meaning. The expressions would include all matters relating to all agreements in connection with immoveable properties. The immoveable property should form the dominant purpose of the agreement”

 

The Supreme Court in Doypack Systems (P) Ltd. vs Union of India (1988) 2 SCC 299 went into the meaning of the phrases "pertaining to", "in relation to" and "arising out of". The court in the said case observed in para no 48

". .....The expressions "pertaining to", "in relation to" and "arising out of", used in the deeming provision, they are used in the expansive sense, as per decisions of the court, meanings found in standard dictionaries and principles of broad and liberal interpretation in consonance with Article 39 (b) and (c) of the Constitution. xxxx 50. The expression "in relation to" (so also "pertaining to"), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both a direct significance as well as an indirect significance depending on the context out of which the dispute arises …..”

There has been another significant stipulation in clause (vii) relating to immoveable property, i.e., the property should be used exclusively in trade or commerce. The natural and grammatical meaning of clause (vii) is that all disputes arising out of agreements relating to immoveable property when the immoveable property is exclusively used for trade and commerce would qualify as a commercial dispute. The immoveable property must be used exclusively for trade or business and it is not material whether renting of immoveable property was the trade or business activity carried on by the landlord. Use of the property as for trade and business is determinative. Properties which are not exclusively used for trade or commerce would be excluded.

Falling back on explanation, as narrated above , that stipulates that a commercial dispute shall not cease to be a commercial dispute, merely because it involves recovery of immoveable property, or is for realisation of money out of immoveable property given as security or involves any other relief pertaining to immoveable property, and would be a commercial dispute as defined in sub-clause (vii) to clause (c). The expression “shall not cease”, it could be asserted, has been used so as to not unnecessarily expand the ambit and scope of sub-clause (vii) to clause (c), albeit it is clarificatory in nature. The expression seeks to clarify that the immoveable property should be exclusively used in trade or commerce, and when the said condition is satisfied, disputes arising out of agreements relating to immoveable property involving action for recovery of immoveable property, realization of money out of immoveable property given as security or any other relief pertaining to immoveable property would be a commercial dispute. Therefore, the expression “any other relief pertaining to immoveable property” is significant and very wide. The contours are broad and should not be made otiose while reading the explanation and sub-clause (vii) to clause (c) which defines the expression “commercial dispute”. Any other interpretation would make the expression “any other relief pertaining to immoveable property” exclusively used in trade or commerce as nugatory and redundant.

The hon’ble Division Bench has thus held that reading of the explanation with sub-clause (vii) to clause (c) in sync with the object of the Act, would include all disputes arising out of agreements relating to immoveable property, when used exclusively for trade and commerce, be it an action for recovery of immoveable property or realization of money given in the form of security or any other relief pertaining to immoveable property.

In the aforesaid context thus, it is held that the immoveable property was being used exclusively in trade and commerce. It is also analysed as to if a suit involving action for recovery of mesne profits is a dispute arising out of agreements relating to immoveable property When one reads Order XX, Rule 12 of the Code and keep in mind the nature of the claim for “mesne profits”: The term  has been defined in sub-section(12) to Section 2 to the Code to mean those profits which a person in wrongful possession of such property actually received or might with the ordinary diligence have received together with interest on such profits but would not include profits due to improvements made by the person in wrongful possession. Mesne profits can be also claimed in suits for partition and possession from other co-owners and joint-holders. However, in the present case, the bench held that the issue was that a property given on rent, for being exclusively used for trade and business.

MESNE PROFIT

The hon’ble Supreme Court in Corporation of Madras Vs. M.K. Buhari (2000) 9 SCC 497 has held that mesne profit cannot be less than the rent payable in respect of the property given on rent. Mesne profits are in the form of damages which are payable by a person in wrongful possession. It protects the interest of the owner/landlord and is payable equivalent to the market rent by the person who has failed to deliver the possession and is holding over the property [See Marshal Sons and Co. Ltd. Vs. Sahi Oritrans(P). Ltd.& Anr. (1999) 2 SCC 325]. Claim for mesne profit can be joined with a suit for recovery of immoveable property under Order II Rule 4 of the Code and for this no leave of the Court is required. Order XX Rule 12 stipulates that when a suit is filed for recovery of possession and for rent or mesne profits, the Court may pass a decree for possession of the property. It can also pass a decree for mesne profits or direct an enquiry as to the mesne profits. Such enquiry can be from the date of institution of suit till delivery of possession to decree holder, relinquishment of possession by the judgment debtor with notice to the decree holder through court or expiration of three years from the date of decree, whichever occurs first. A decree of mesne profits under clauses (b) and (c) would be a final decree, which would be passed after the enquiry.

                          FINDING OF DIVISION BENCH

The hon’ble Division bench in the Jagmohan Behl case (Supra) has returned the finding that Lease of immoveable property is dealt with under the Transfer of Property Act in Chapter V thereof. The said enactment vide section 105 defines what is lease, lessor, lessee and rent and vide section 107 stipulates how leases are made and can be terminated. Leases can be both oral or in writing. Noticeably, sub-clause (vii) to clause (c) in Section 2 of the Act does not qualify the word “agreements” as referring to only written agreements. It would include oral agreements as well. The provisions of the Transfer of Property Act deal with the effect of non-payment of rent, effect of holding over and most importantly the determination of the leases or their termination. It cannot be disputed that action for recovery of immoveable property would be covered under sub-clause (vii) to clause (c) when the immoveable property is exclusively used in trade or commerce. The bench thus held that read in this manner, the claim for recovery of rent or mesne profit, security deposit etc., relating to immoveable property which was used exclusively in trade or commerce should only be treated as a commercial dispute in view of the language, ambit and scope of sub-clause (vii) to clause (c) to Section 2 of the Act. These would qualify and have to be regarded as commercial disputes. The use of expression “any other relief pertaining to immoveable property” would mean disputes relating to breach of agreement and damages payable on account of breach of agreement would be covered under sub-clause (vii) to clause (c) to Section 2 of the Act when it is arising out of agreement relating to immoveable property exclusively used in trade and commerce. The hon’ble Division bench has thus held that the appeal clearly fall within the domain of commercial courts Act and shall be treated as Commercial disputes.

 

CONCLUSION

The dicta laid down, as above, has therefore, set at rest ambiguity and as judicial courts had often been beset with, the aspect and issues, if the matter before them, relating to immoveable properties and benefits and money claim arising out of lease, agreement and even based on oral agreement shall be construed as Commercial dispute or not and whether that could fall within the domain of Commercial Courts Act or not? The dicta, as aforesaid, now leaves no manner of doubt that if the predominant object of the agreement or transaction is commercial in nature, the same shall be a commercial dispute and shall resultantly fall within the framework of Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 and Commercial Suit shall be the only option to parties to a lis and that will be maintainable.

 

Anil K Khaware

Founder & Sr Associate

Societylawandjustice.com